Trillion Dollar Coins: Solution to the Debt Ceiling Crisis?

by InvestorPlace Staff | January 7, 2013 7:57 pm

[1]Even though Congress finally managed to avoid going over the fiscal cliff[2], passing that bill didn’t spell the end of the United States’ debt woes. What problem does the U.S. face next? The debt ceiling crisis[3].

The issue facing the United States now is that it has essentially hit its borrowing limit, as set by Congress. It technically hit the limit on the last day of 2012, but some clever accounting will allow the United States to keep borrowing money and to meet its obligations for another six to eight weeks.

After that, though, a deal will need to be made. Congress could theoretically raise the debt ceiling again, but Republicans will want spending cuts in return for that deal. Democrats are less enthused about that, and, in fact, that’s what started this whole mess in the first place back in 2011.

There is, however, another possible solution to this: trillion dollar coins[4]. Yes, you read that right. There is a loophole in the debt ceiling law that would allow the Treasury department to create platinum coins in any denomination, up to and beyond a trillion dollars. These coins could then be used to pay the country’s bills and get around the debt ceiling issue.

When first suggested, few politicians took the idea seriously. Now, though, New York Times columnist Paul Krugman has urged President Barack Obama to keep the trillion dollar coin as a weapon to insulate against the U.S.[5] defaulting on its debt. In addition, Rep. Greg Walden, R-Ore., has introduced a bill that would ban the Treasury from doing so.

It’s far from a guaranteed move at this point, but some people are taking it seriously. Seriously enough to consider a law that would ban trillion dollar coins, anyways.

— Benjamin Nanamaker, InvestorPolitics Editor

The opinions contained in this column are solely those of the writer.

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